This critical incident describes a federal regulatory battle faced by Fourth Corner Credit Union. Located in Denver, Colorado, Fourth Corner wanted to be the first Colorado credit union created to serve the growing recreational marijuana industry. Although marijuana remained an illegal drug at the federal government level, Colorado had approved marijuana for recreational use within the state. Fourth Corner Credit Union successfully applied for and received a state credit union charter (i.e., permission) from Colorado in 2013, but was unsuccessful in securing a Master Account from the U.S. Federal Reserve. Without a Master Account, the credit union could not obtain insurance from the National Credit Union Association, leaving its prospective depositors unprotected from financial losses and unable to transfer funds or complete settlements. Thus, the doors to Fourth Corner remained closed. Given the setback, students are asked to decide which course of action Deirdra O’Gorman, the credit union’s CEO, should recommend at next week’s board meeting.
Only a few weeks into his three-year term on the board of directors for the Oneota School for Children (OSC), Brian began to second-guess his acceptance of the role of Treasurer. Brian was new to town and thought getting involved in his child’s school would be a good way to engage in his new community. It was clear after he started preparing the budget that this role might be a bigger job than he anticipated. Brian had not been able to get the budget to balance, and after presenting the numbers to the board, he was not sure their suggestion to increase enrollment would help. The board was depending on Brian to provide financial support to make these decisions. Brian left the board meeting with more questions than answers. Would increasing three-year-old enrollment really balance the budget? What non-financial factors should he consider? If increasing three-year-old enrollment wouldn’t work, what would? What would be his final recommendation to the board?
Ben was eager to get started on his new assignment for Northflow Solutions, Inc. His direct supervisor, Monica, had given him all of the details necessary, and he had reviewed the entire file. The company had not increased prices in nearly 15 years, and they were concerned that their current method for allocating overhead using a single rate was inaccurate. Ben’s task was to use Activity Based Costing (“ABC”) to improve the accuracy of overhead allocation. After doing so, he would be able to help Northflow Solutions, Inc. improve their pricing model and profitability by customer.
Following several years of declining revenues and profits, in 2011 Sears began to hive off its business divisions. As part of its series of divestitures, on December 6th, 2013 Sears announced its intention to spin off Lands’ End in a stock distribution to the existing Sears’ shareholders. With the spinoff, each Sears shareholder received approximately 0.3 shares of Lands’ End stock for each share of Sears stock that they owned and Sears would receive an approximate cash payment of $500 million dollars from Lands’ End which was funded from the proceeds of a $515 million loan. In light of terms of the spinoff, the stockholders and other stakeholders of Sears and Lands’ End needed to evaluate their relationships with the firms. Should Lands’ End stockholders keep their shares or sell them? Would the terms of the spinoff hurt the ability of Lands’ End to operate in the future?
Mike Wilson, accountant for Southern Hospitality Inn hotel, was pulling together the projected costs and lost operating revenues of the hotel and the adjoining restaurant, Bridgeton Kitchen, for insurance claim filings following a devastating fire. Because the inn and restaurant had not been in business for even a year before the fire occurred, Mike also needed to rely upon industry projections for similar facilities, rather than historical sales records, to determine lost revenues. Mike had collected all of the data that he needed to start performing the calculations; it was now just a matter of doing the projections. Once the estimations were completed, Mike had to decide what information to provide the insurance company to support the hotel’s claim.
Jim Foster, the owner of the Selwyn Pub in Charlotte, NC, had just been forced to cut down a signature element of his successful Pub, a 100 plus year-old tree in the middle of his outdoor patio. Replacing the over 100’ tree with another tree of equal or near equal size was impractical. He could pave over the hole left by the tree and simply use umbrellas, construct a non-retractable awning over the space left by the tree, or construct a retractable awning over the space. As a former accountant, Foster had kept careful records of daily revenue and the effect of weather on each day’s revenue. He thought that he could build a model to determine the value of each alternative based on revenue, profit, and weather conditions to help him with his decision.
Andy Mattingly, Chief Operating Officer of the FORUM Credit Union, has been tasked with the responsibility of developing a program to attract more First-Time Homebuyers (FTHB) to choose FORUM as the lending institution for their mortgage loan. FORUM is ‘behind the curve’ in offering such a program, and many other financial institutions have established one. Andy has at his disposal a fair amount of research on who their potential target markets might be as well as how some if these target markets go about choosing a mortgage lender. Andy much answer such questions as: Who would be our primary target audience(s)? How do they go about choosing a mortgage lender? Who is our main competition? How can we position ourselves against that competition to establish a competitive advantage? What tools of the marketing mix should we use to create that advantage?
Sue Smith was a board member of Midwestern Community Credit Union (MCCU) in 2013, when short-term interest rates were near zero due to an easy Federal Reserve monetary policy following the 2007-2009 recession. Smith remembered the S&L crisis of the early 1980s, when many S&Ls failed due to an interest rate mismatch of holding long-term fixed-rate mortgages as their main asset, while funding them by short-term savings deposits. As interest rates increased, some S&Ls were paying more on deposits than earnings from mortgage loans, and a large number of S&Ls went out of business. MCCU hired a new vendor and the vendor proposed a complicated asset-liability model that included interest rate risk. Smith was surprised the model predicted MCCU might benefit in an increasing interest rate environment. She decided to analyze the accuracy of the vendor’s model from several perspectives in order to make board policy recommendations.
Cyprus Airways was the national carrier of the Republic of Cyprus. Established in 1947 and predominantly state-owned, the airline became known for being poorly managed and consistently losing money. The latest public money injection took place in December 2012 - January 2013, and amounted to €103 million of state funds – prompting soon afterwards an in-depth investigation by the European Commission. The Commission was not sure if the capital increase was made on market terms. Indeed, if the company faced severe financial problems and its viability was at stake, it would explain why the majority of private shareholders decided not to participate in the capital increase. Cyprus Airways published its latest audited financial results in 2011, and released some unaudited results for 2012. What was the airline’s financial situation, as revealed in those reports? What specific financial problems can be identified via the company’s financial statements? How did the airline’s situation look to a potential investor?
Carolyn Jones was a recent accounting graduate who wanted to take the Uniform Certified Public Accountant (CPA) Exam. Like many others who studied for the CPA exam, Carolyn looked for resources to help her prepare. She soon discovered companies that provided review programs and materials charged hefty prices for their services. She knew that she was not the only one who had faced this issue, so she asked some of her classmates how they dealt with it. A few said that they had purchased resources together and shared them. Another said she had bought resources provided by Becker Professional Education—one of the leading companies for these resources—from a third party she found online for less than a quarter of what Becker charged. These both seemed like possible solutions to Carolyn’s problem, but she had concerns about them, especially purchasing the resources from another source. Would they be accurate? Would they be up to date? Would it be ethical? Could there be other consequences associated with purchasing these materials from a third party? These were all issues Carolyn needed to consider as she decided what she should do.